Empowering village-owned enterprises: Examining leadership, innovation and government support

Abstract

This study examined the interrelationships between leadership styles, innovation capabilities, government support and performance within the context of Village-Owned Enterprises (VOEs) in Indonesia. It investigated how these factors were interconnected and influenced the success of VOEs in East Java. The authors distributed questionnaires designed to collect data on the critical variables to 294 employees in legally certified VOEs across East Java. The collected data was analyzed using the partial least squares structural equation modelling (PLS-SEM) method. The study's findings revealed that transformational leadership, characterized by its focus on inspiring vision and empowerment significantly and transactional leadership which emphasize supervision do not directly affect the performance of VOEs but have an effect through the mediation of innovation capability and government support as moderating variables. Robust innovation capabilities had a positive impact on the financial sustainability and broader social performance of VOEs emphasizing the benefits of fostering innovation. Moreover, government support in the form of financial aid, capacity building and regulatory regulations moderated the association between innovative skills and VOE performance highlighting the significance of targeted government interventions in improving innovation outcomes. Furthermore, innovation capabilities played a vital mediating role in linking leadership styles to performance. Performance was mediated by improved innovation skills rather than being directly impacted by visionary leadership. This study had practical implications for policymakers and VOE managers, emphasizing embracing transformational leadership, fostering innovation capabilities and providing government support as interconnected drivers of success for Village-Owned Enterprises.